The Choice of Three Strategy

Jan 15, 2015

Have you ever looked down a wine list, paused in apparent concentration for a few moments before ordering the second least expensive and clapping the menu shut? You don’t want to seem like a cheapskate but also don’t want to waste money on something that you may not enjoy. Well, you’re not alone. It’s natural to aim for the thick of the middle when faced with a choice that we are not experts in. This is known as the Choice of Three strategy. Most people quickly distill to the easy logic of cheapest= worst and most expensive= best. Choosing from the middle shows that we have considered all the options and have made an informed decision.

This tendency is frequently exploited by the electronics industry. Out of three machines, that all ostensibly perform the same function, the one priced in the middle will outsell the others and it is due to the basic principle of Choice of Three pricing.

Can this logic be applied to vacation rentals?

There are two ways to apply the Choice of Three strategy. Firstly, you can have properties which vary in rate based on their facilities, location and size. Guests looking to book in the area where your properties are will then have a choice between which property they want to stay in based on the apparent luxury of the property set against the price. The Choice of Three strategy dictates that the price in the middle is statistically more likely to be chosen. It is worth considering this principle if you are looking to increase the occupancy of low or high priced property. Shifting the price more towards the mean average may increase the appeal of the property.

The other option is to have various prices for the same property, depending on the level of service and the extras it comes with. This would range from a no-frills, basic package to a gold-standard, everything included package. This could include services such as breakfast delivery or even a concierge service. The point is that it would contain all of the extras you offer, and come at the highest price.

The third option would then to be to pitch a price in the middle of these two. A price that includes some, but not all of the services you offer. Using the principle of the Choice of Three, this option is likely to become the most popular choice as it seems to be the most sensible choice. You can even give your customers the option to select which services they would like to add to their stay, allowing them to personalise their trip. The theory is that you will sell more extra services than if you just offer the property and the services or products separately.

It is important to have well-defined floors and ceilings in your pricing. There needs to be a big enough gap between the highest price and the middle-ground for your customers to notice. The aim is to find the sweet spot where the cheapest option looks to be poor value because the other option offers so much more without being too expensive. The highest priced option is there to then make your middle choice seem to be inexpensive. You present the middle ground that has the right balance between product and price.

Using the Choice of Three strategy for your vacation rental business can help you convert customers and sell extra products or services alongside bookings.

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